哥伦比亚大学出版社访谈

Columbia University Press - Michael Mauboussin Interview

In More Than You Know, Mauboussin shares his secret to becoming an insightful investor and provides invaluable tools to better understand the concepts of choice and risk.

Question: More Than You Know comes at the world of investing from a very different perspective than the average book. Can these nonconventional ideas really help an investor succeed?

Michael Mauboussin: This book celebrates the notion that a multidisciplinary approach is best for solving complex problems, including those in investing. Too much of our learning narrows perspective. We can gain great insight by learning the important ideas from various disciplines and appropriately applying them to investing. Almost everything you can read— from science to literature to psychology—can make you a better investor if you’re willing to make connections.

Here’s a quick example: Professor Robert Sapolsky’s book about stress, Why Zebras Don’t Get Ulcers, notes that most animals get stress from physical risks. Humans, on the other hand, now get most of their stress from psychological factors. With animals, stress dissipates when the physical threat passes.

Humans, on the other hand, are often chronically stressed because the psychological issues don’t go away. This perpetual stress influences our abilities and behavior— including, of course, how we run investment portfolios.

Q: Is this book only for investors, or would non-investor types enjoy it as well?

MMMy target audience is investors. That said, I think anyone who is intellectually curious and who makes decisions will find this book fun and useful. For example, after reading “Everything I Need to Know I Learned at a Tupperware Party,” my wife now recognizes why it is so hard to go to a Tupperware party and not buy lots of useless stuff. The essay explores the tendencies of human behavior, explored by Professor Robert Cialdini, that get people to say yes. As it turns out, Tupperware parties take advantage of four of the six tendencies—reciprocity, social validation, commitment, and liking—creating a powerful impetus to buy. Knowing why you are going to feel compelled to buy is pretty handy knowledge.

Q: This book has a whole section on psychology. Why is that so important for decision making in markets?

MMEven though psychology is self-evidently important for the stock market, business schools didn’t teach students anything about it until fairly recently. In the name of analytical convenience, most finance models treat investors as rational and all-knowing. All you have to do is pay attention to your own thoughts and decisions for a little while to recognize that that assumption is wildly off the mark. This book not only considers individual cognitive pitfalls—the errors you and I routinely make—but also looks at the wisdom (and whims) that result from collective behavior.

Q: If the multidisciplinary approach is so valuable, why don’t all investors use it?

MMThe multidisciplinary approach requires lots of time and an appropriate temperament. You have to allocate a lot of time to reading and learning across various disciplines, with no clear assurance that what you learn will be directly applicable to investing—at least not immediately. Also important is temperament and a willingness to make connections or draw analogies across apparently disparate topics. Most investors get caught up in busy work such as excessive trading or trying to absorb the torrent of information that the financial community produces.

Q: The book stresses the importance of the investment process over outcome. Aren’t outcomes the real bottom line?

MMOver time, outcomes are what matters.

Outcomes are objective and measurable. The real question is: What’s the best way to assure satisfactory long-term outcomes?

Investing is a probabilistic exercise. In any probabilistic field, you have to recognize that even great decisions won’t work out all of the time, and sometimes poor decisions will work out well. It’s like sitting on a seventeen at the

Columbia University Press - Michael Mauboussin Interview

blackjack table—if you ask for a hit, you may get a four and win the round. But probabilistically, that’s a bad move. Do it enough and you’re assured of a loss. Judging the virtue of the hit based on a one-time outcome clearly doesn’t make sense.

What’s also interesting is that the elite performers in all probabilistic fields— gamblers, sports team managers, handicappers—all think in terms of process versus outcome. So while our society may be conditioned to focus on outcomes, an emphasis on process makes the most sense for the long haul.

Q: You suggest that you can’t understand markets by tuning into investment experts.

Why not?

MMMarket prices represent an aggregation of a lot of information from many diverse investors. The interaction of investors is the key, and it assures that the market knows much more than any particular individual.

I often offer the example of an ant colony.

Study the colony, and you’ll find it’s robust, adaptive, and has a life cycle. The colony is almost like an organism itself. But then zoom in on an individual ant. Ants operate with local information and local interaction. They have no clue what’s going on at the colony level, yet the interaction of the ants is what makes the colony work.

You’d never dream of interviewing an ant to understand the colony. Likewise, it’s important to recognize that investment experts aren’t much better off than ants. They come with their own perceptions and biases. If you want to understand the market, look at the market itself.

Q: Behavioral finance has become very popular in recent years. You advocate some skepticism. Why?

MMOver the past couple of decades, psychologists have confirmed what common sense tells us: as individuals, we are not always perfectly rational in our decision making. Since many economic models are built on the notion of investor rationality, the behavioral-finance attack appears to undermine a building block of the efficient-market school.

The problem is that markets are not, and never have been, shaped by rational people. Markets reflect the interaction of a diverse group—and indeed that diversity is essential to attaining accurate results. Studies show that when diversity, interaction, and incentives are in place, markets are remarkably efficient at solving all sorts of problems.

So here’s the problem with behavioral finance: Some enthusiasts suggest that if individuals act in suboptimal ways, then markets must also be suboptimal, or inefficient. But the second simply doesn’t follow from the first. As long as individuals are suboptimal in different ways— they are diverse—then we can still get efficient outcomes.

Q. Why do you caution against using a popular measure, the price/earnings ratio, to value the market or individual companies?

MMMy answer to this question has a very unusual source of inspiration: slime mold. As it turns out, when food is abundant, slime mold cells operate as independent, single-celled units. But when food supplies are short, the cells converge into a large cluster. Whether slime mold is an “it” or a “they” depends on the circumstances.

Good theory is about developing reliable links between cause and effect. Too often, theory is based on a system’s attributes. In investing, for example, you might say that buying companies with low price/earnings ratios is good. In fact, many investment firms organize their activities around attributes.

But really robust theory relies on circumstances. Whether a low price/earnings ratio is attractive depends on the circumstances. And since the underlying drivers of value change—think of fluctuating inflation expectations and tax rates—the appropriate price/earnings ratio changes with it.